Karl Popper is rightly esteemed by those of a liberal persuasion for his many contributions to the cause. In The Open Society and its Enemies – volume 1 he took issue with Plato. He showed that although Plato claimed to be seeking just and virtuous rulers, his Republic resembled the totalitarian warrior state of Sparta with detailed control over every aspect of its citizens' lives. The point, said Popper, was not to choose the best rulers, but to prevent bad or incompetent rulers from doing too much damage.

In volume 2 of The Open Society he took issue first with Hegel, then with Marx, showing that their ideas must lead to coercion and that they contain the roots of totalitarianism, a theme he developed in The Poverty of Historicism, where he countered the socialists' claim that history is moving in their direction toward an inevitable goal.

Yesterday The Times published an op-ed response to The Tide Effect report released by VolteFace and the Adam Smith Institute on Monday by columnist Alice Thomson. The report argues that the only way to bring cannabis under control is to legally regulate it. Thomson presents the counterexample of Colorado, the US state where cannabis has been legal longer than any other, and paints a bleak picture of the place since the change.Her article plays on the understandable fears of many regarding the impact of a regulated market by sporadically drawing what seems to very credible and alarming statistics.

There are any number of people saying things akin to this about Google's tax affairs. And sadly all of them are exactly and precisely wrong:

But Jeremy Corbyn said experts thought it amounted to an effective rate of about 3%, in contrast to rates of corporation tax of above 20% over the last decade.

The Labour leader pointed out that most people did not have the luxury of personal meetings to discuss their tax affairs. “Millions of people are this week filling in their tax returns to get them in by 31 January,” he said. “They have to send the form back. They do not get the option of 25 meetings with 17 ministers to decide what their rate of tax is.

“Many people going to their HMRC offices or returning the [form] online this week will say this: ‘Why is there one rule for big multinational companies and another for ordinary small businesses and self-employed workers?’”

About lobbying: well, what does anyone expect will happen? The more arbitrary and political the treatment of a company is the more lobbying will be done to influence the politics. But the thing which is exactly wrong is this idea that Google is exploiting some set of rules available only to large and or multinational companies. That is precisely wrong: completely the opposite of reality.

What it is actually doing is saying that it sells its advertising into the UK from Ireland. The tax treatment of those advertising sales is thus up to the Irish taxman, not the UK. Maybe it shouldn't be this way, maybe it should, but that is the way that it is. And under the usual treaties (OECD standard ones, and also current EU law) that really is the way it is.

So, why is it this way?

Because international tax law accepts that we would like to have small companies taking part in international trade and also that it's possible for the demands of the tax authorities to be too high to allow them to do so. A UK company which makes the occasional sale in Germany say: or India. Do we think that they should then file a German, or Indian, tax return? Try to pull out the profit that was made on perhaps 0.5% of their turnover just for that one tax authority? Prepare accounts according to the standards of every country they ever ship a package to?

No, obviously, we do not insist upon that. It's as plain as the idiocy on a tax campaigners' face that we're not going to insist upon that: not if we're to allow small companies to take part in international trade.

So, how do we organise it? We have a definition of when a company is "really" in a particular taxing jurisdiction. Essentially, when there is a "permanent establishment". No, don't worry how that is defined: just accept that there's going to be some cut off point. You're a big company with a big presence, cough up locally. You're a flea bite on the economy? This economy is trivial to you as a company? Well, why not just account for profits and pay taxes at home then?

Note again: we do not insist that the current rules are right. Only that there is always going to be some approximation to this system in any international taxation system. We simply are not going to insist upon a German tax return for the two man UK company that ships a model train steam boiler to one customer in Germany. And thus we must have a distinction.

What is it that Google is doing? They are claiming that their Irish Google, the one that sells all the advertising, is in fact an Irish company with no such permanent establishment in the UK. Is this thus special rules for multinationals, for large companies?

No, obviously it isn't. This is a tax simplification set up for small companies. And Google is claiming it by claiming to be a small company. This is a tax simplification available to absolutely every Irish company that sells into the UK. It's one that applies to every French one selling into the UK, to German ones selling into Romania and to all UK companies selling everywhere. As long as you don't have a permanent establishment where you are selling then you pay your tax at home.

Whether it should be this way is another matter. But we really do think it's important to point out that Google is not exploiting some loophole only available to large companies. It's actually using one that was designed for small companies and applies to all small companies. And it's also one that just about every company that does any international trade at all uses at some point or another. Even the largest global exporter does not have a permanent establishment in every tax jurisdiction. Finally, the tax system just wouldn't work at all, not and allow small companies to conduct international trade, if something like this were not in place.

Exploitation? Loopholes? Abuse? Unfair? Could be any of those things according to your own opinion. But let's get it right about which loophole is being exploited to produce possibly unfair abuse. Unlike, you know, all the tax justice campaigners. This is a small company exemption, not a large company one.

At present we have housing policies which revolve around clichés. If something is repeated often enough, it soon begins to be taken for truth. We are told time after time that there is a housing crisis. We are also told that the level of new build is too low and lower than in the past. Finally, there is the policy stereotype that we need national targets to solve the crisis.
The crisis is usually defined in terms of affordability, and measured in terms of the ratio between income and house prices. Income is taken as the income of an individual. Yet most mortgages are taken by couples both with earnings so a more realistic figure would be the joint household income. There are no published figures for such joint income: but partners who are both on the minimum wage would be earning £30K between and across the labour market, £40K would be a more reasonable estimate.

Outside London, the South East, and East: prices paid by first time buyers in 2014 were:

West Midlands - £146,000

East Midlands - £137,000

Yorkshire and the Humber - £133,000

North West - £136,000

North East - £118,000

(Source ONS)

The average price across these five regions is £134,000. The (Help to Buy) scheme with a 5% deposit has been popular in these areas, but even a 10% deposit should be feasible in a population where most young people under 30 have ISAs. For a 10% deposit, in the extreme case in which they had no savings at all, our young or not so young couple would have to save between them £600 a month over two years - from a gross income of £3300 a month. In Scotland, the average first time buyers price was £137K and in Wales £133K.

In other regions there are more serious problems of affordability. In the East the starting price was £204K, in the South East £231K and in the South West £181K. But even in these regions there are lower priced properties in some areas. There is a real affordability problem in London where the starting price was £364K. So in terms of affordability, there is a range with no problems in five regions, some in three, and an acute problem in London.

Excess Demand -The second test of crisis is the existence of strong excess demand. There are 124 post code areas in the UK. Our estimate is that of the 124 there are 30 with intense demand pressure, 70 where turnover is steady, and 24 where there is a housing surplus measured by the existence of housing stock that hardly ever sells. Again the problems are much more limited than the usual description in terms of crisis.

The Holy Grail of Owner Occupation

There is another idee fixe which has a great influence on policy— there is a crisis in terms of reduced access to owner occupation. Between 1961 and 2008 owner occupation rose from 43% to 68% of households and private renting rose from 9% to 14%. This rise in owner occupation was due to some factors, such as, the coming of the right to buy not likely to be repeated on this scale. The private rented sector has made several contributions:

Local initiative through buy to let has led to increased choice and the availability of tenancies in every town and city including London. This was a totally different situation from that at the end of the era of rent control in the 1960s.

Renting gives people with middle to low incomes much more choice of the area in which they live. Every year many thousands of new graduates and new migrants find accommodation in London. The rental market even in London has adjusted to the purchasing power of the customers which is much lower than that for house buyers.

Renting allows people to find accommodation quickly in new areas—the transaction costs are much lower. Owner occupation fitted well to a labour market in which people had jobs for life, but makes little sense for people who may move jobs, become self-employed or even move abroad for a period.

There is a tendency to exaggerate the shorter term capital gains to owner occupation. If house prices rise 5% a year in real terms, they would double in 20 years. The £134K house would be worth £270K—but the owner occupier –allowing for mortgage payment and depreciation of £2k a year for repairs, would have paid £180K even before discounting which would reduce the long term gains. The capital gains to owner occupation accrue mainly to those with very long term occupation who have paid off their mortgages—in fact the generation who were in jobs for life.

Even the problem that young people continuing to live with their parents is not as simple or heart rending as it sounds. This is not just a question of housing shortage. It may be the better option if the parents are under occupying larger houses. There are also gender differences with many more males in their 20s continuing to live at home. Perhaps the next Whitehall programme should be to promote evening classes for young males on how to turn on washing machines and cook simple wholesome fare.

The Myth of Under Production

Housing policy is deeply affected by the view that we are building far too few houses. Often mentions are made of the 400,000 plus built in the 1960s. However these numbers were a once for all event in conditions which were very different. There were residual problems with slum clearance and bomb damage: but the main feature of the 1960s was the ruthless demolition of large areas of housing, especially in Manchester and other Northern cities, and replacement with large estates often of poor quality. There was much demolition of houses which should have been improved. Many of the properties built in the 1950s and 1960s have had to be demolished because of their poor quality having caused misery to their residents. Many of the famous Macmillan 300,000 houses have had to be demolished. The photos show striking examples in Hackbridge, South London. workers cottages at least 200 years old could be on the market for £500K while a 40 year old development by the River Wandle is being demolished.

In social housing the Peabody properties built 150 year ago are of better standard than many of the modern properties close to them. Whole estates have had to be demolished such as the Quarry Hill flats in Leeds and the Ferrier estate in South London—but not before they had caused misery to successive generations of tenants.

In fact the output of private sector housing has been quite stable up to 2008, at around 150,000 houses a year — one of the few features of the housing market that has shown some stability. (See graph) The lessons of the past are that national targets promote poor quality in housing and that government interventions have been the main cause of a repeated boom and bust cycle in the housing market.

The New Realities of the Housing Market

There used to be a housing life cycle which involved early periods of renting or living in the family home, followed by movement to a small house or flat, and then for some after a few years moving to a larger house with family space. The stay in that house could be decades. This life cycle pattern led to a stable core of long term owner occupiers—or council tenants.

Now the market is more divided into sub-markets depending on a much greater variation in housing preferences by ‘consumers’. The market is adjusting to changes in household types which are leading to greater variations between local areas. There is not one national housing market but a series of sub-markets between housing of different types and sizes, and with differing economic incentives. We need much more information about the housing demands of specific groups including:

Single people—now 44% of households.

Regional and sub-regional differences demand for properties of different types and sizes.

Housing mobility by younger people and housing aspirations.

Likely downsizing by older people—and how equity release has reduced the incentive to downsize. Mobility and post retirement options.

How do people see options for changing housing space without moving? There is a much more extensive business in terms of additions to properties than there was in the past. How far will these options affect local demand for housing?

The most obvious regional difference in housing is between London and the rest of the UK. The London market is distinctive in its housing stock with more than half the flats in the UK in London. It is distinctive in the average price and in the top end property values. It is also distinctive in turnover and mobility.

The London market is affected by Hirsch effects named after the economist Fred Hirsch[1]. (Hirsch 1976) There can be intense competition for scarce positional goods. The word “cool” is worth £200K on the London housing market as formerly low income areas such as Balham and Tooting acquire social cachet. The Sloane rangers have now moved to Battersea. Transport and tube availability reinforce the Hirsch effects. Such effects are found much more strongly in London than in any other parts of the UK. These special conditions certainly require feasible measures to increase the availability of housing—but they are a bad guide to policy for the rest of the UK.

Policy Directions: Quality and Choice

Housing needs to use DevoMax. We need not national housing targets but a series of more local and sub-regional policies to build momentum for further improvement. There has been some very significant progress over the last two decades in raising quality and choice. 90% of British properties now have central heating and reach standards which would have seemed out of reach 40 years ago. Social housing agencies have greatly improved management of rented public housing. Buy-to-let investment has increased choice and mobility.

Local Enterprise Partnerships can be leaders in improving the local environment. Some LEP plans and County Councils are already setting targets for housing. They now have the chance to lead in better local environments. For example SEMLEP the LEP for the South Midlands covering Buckingham, Northampton and Milton Keynes with a current population of 1.7 m has set out aspirations for building 100,000 houses in the next ten years.

West Sussex is expecting 56,000 houses over the same period.

Overall LEPs are planning 1.5m houses over the next ten years. These developments create opportunities for some distinctive high quality additions to the local stock. But first LEPs should commission studies of the potential customers in the area. What seem to be the gaps in the existing housing stock? There are opportunities for many different types of scheme, from starter flats for young people through to extra care housing. Targets for ‘housing’ are too simplistic. What kind of housing in a time when there is much less standard life cycle than used to be the case?

Targets lead to a focus on numbers and easy options to reach numbers. This will tend to push action towards building large numbers of houses on the outskirts of exiting towns, often without adequate infrastructure and social amenities. Instead of ribbon development we will get rectangle development. There is a danger that opportunities will be overlooked for infill developments within towns. Change on the High Street and on supermarket sites is creating new opportunities for much more building in towns. LEPs can provide information both in terms of the types of housing required and for local opportunities. There are particular opportunities for social housing agencies to develop these local schemes. Instead of national targets we need different market driven opportunities which will vary between LEPs. Devolution means promoting housing choice and housing quality—for people with lower income as well as the better off.

A local approach is highly relevant to the special problems of London. Here there are pressures but also an active market for any middle income housing either for rent or buy. There are many new opportunities to develop sites. For example one supermarket chain (Tesco) in London has just released ten large sites for development.

The reduction in planning restrictions on adaptation of offices into residential has had highly positive effects but there is far more that could be done, especially in the suburbs, for more intensive use of smaller, often semi derelict industrial and garage sites, as well as for change in High Streets to redevelop unused shops. There is of course scope for developing new kinds of industrial site as is being done in Shoreditch, but many of the smaller sites in the outer suburbs such as Richmond and Hounslow are not suitable.

There are already positive developments in rented housing in London. Under the Build to Rent scheme there are already close to 14,200 units in planning, completed or under construction in London compared to 7,112 in the rest of the country. These schemes are attracting pension fund and institutional investors and can do for the wider range of mainly young people what investment has done for student housing.

The housing problems of London should be addressed by local initiative not by national targets.

Talking about Labour's "rock star" economists and their tour of the UK to tell all how neoliberalism is not longer where it's at, Anne Perkins gives us this:

On Tuesday night, the economist of the Entrepreneurial State, Mariana Mazzucato, wondered, in the course of a brilliant inaugural lecture in a Labour-backed series of talks to fire up a conversation about the state and the economy, what food was necessary to turn timorous business folk from gerbils into lions.

Her answer is mission-oriented public investment, which sounds very much like rocket science until you realise that actually she is pointing at the way entrepreneurs very often ride off the back of state investment.

She argues that we need a way of recognising and talking about this unacknowledged role of the public sector, and points at the way Germany has tackled greening the economy. It’s not just building wind farms, it’s investing massively in research and technological development too

.

If we're honest about this that just isn't the sort of example we would have chosen. No, not even if we were Ms. Mazzucato herself. Because if we're going to have a government spraying around 40-45% of everything the country produces in a year then we're really certain that we could find a better example than a pro-renewables policy which has led to the reopening of the appallingly filthy lignite mines and power plants.

No, really, we're really quite sure that government can manage one or another thing better than that, even if we're not quite sure what it is.

Again, if we're fair, we would in fact use this example to bolster our own case about public investment. It's wasteful, inefficient and in almost all, but not entirely all, cases there's a better way of doing it. Or, of course, just deciding not to do it at all.

(For the previous blog in this series, see here.)
This posting goes through the Bank of England’s headline stress test and explains that the reassuring conclusion that the Bank drew from them – that the UK banking system is in healthy shape – cannot be taken seriously because the Bank set the pass standard way too low. On the other hand, if we repeat the Bank’s stress tests but impose higher minimum capital standards in line with those called for under Basel III we find that the UK banking system is in very poor shape.

In this posting, I will go through the Bank of England’s 2015 headline stress test – the test based on the CET1 ratio – the ratio of CET1 (Common Equity Tier 1) capital to RWAs (Risk-Weighted Assets). The definitions of these terms were explained here.

In this test, the Bank sets its minimum pass standard equal to 4.5%: roughly speaking, a bank passes the test if its capital ratio (as measured by the CET1 ratio) post the stress scenario is at least 4.5% and it fails the stress test otherwise.

The outcomes for the 7 banks involved – Barclays plc, HSBC Holdings plc, Lloyds Banking Group plc, the Nationwide Building Society, the Royal Bank of Scotland Group plc, Santander UK plc and Standard Chartered plc - are given in Chart 1:

By this test, the UK banking system might look to be in reasonable shape. Every bank passes the test, although one (Standard Chartered) does so by a slim margin of under 100 basis points and another (RBS) does not perform much better. Nonetheless, according to this test, the UK banking system looks broadly healthy overall.

However, the choice of a 4.5% pass standard is odd, because the Bank itself requires that UK banks meet not only the 4.5% minimum but also meet an additional requirement – usually known as a Capital Conservation Buffer (CCB) – of a further 2.5%, making for a minimum of 7%.

If we apply the Bank’s stress test to a 7% pass standard, we then get the outcomes shown in Chart 2:

We now get a rather different picture: two banks (Standard Chartered and RBS) fail the test and two more (Barclays and HSBC) barely pass with surpluses of less than 100 basis points. Only three (Lloyds, Santander and Nationwide) are above the pass standard with room to spare.

As I evaluate the results in Chart 2 using the Bank’s own criteria, I can see two banks that did not remain above international agreed minimum standards and two others that nearly didn’t – that’s 4 banks out of 7.

Furthermore, even the 7% pass standard is less than the minimum required CET1 ratio that will be implemented under Basel III by the end of the stress period, as it ignores two additional components of the total minimum capital requirement that will be in place by then – the Counter-Cyclical Capital Buffer and the Global Systemically Important Banks (G-SIBs) Buffer. The first of these is an additional buffer meant to counter cyclical factors and is set at the discretion of the Financial Policy Committee (FPC); it is current set at 0% but can be set as high as 2.5% under the Basel III rules. The second is an additional buffer applied to institutions that the FPC deems to be globally systemically important: the values of these buffers were announced in February 2015: 2% for Barclays, 2.5% for HSBC, 1.5% for RBS and 1% for Standard Chartered. These additional buffers will all be implemented as additional capital requirements by the start of 2019.

It would therefore be prudent to include these components in the pass standard as well, and in so doing, to set the Counter-Cyclical Capital Buffer to its maximum possible value of 2.5%.

Chart 3 shows the outcomes if we apply these more stringent capital requirements as the pass standard in the stress test:

In this case, no less than four banks (Standard Chartered, RBS, Barclays and HSBC) are clear failures with outcomes well below the pass standard aka the maximum possible required CET1 ratio under fully-implemented Basel III. Lloyds is exactly equal on the pass standard, Santander is only a tiny bit over it and only Nationwide is comfortably above. Overall, the banking system clearly fails the stress test exam – and this despite the fact that the stress scenario was a mild one!

Pulling all these results together. The UK banking system passes the stress test exam if we take the Bank’s preferred (low) pass standard of 4.5%, which just happens to conveniently support its preferred narrative that the system is sound. However, the banking system performs far less well if we take a pass standard to be 7% (which was the minimum required CET1 ratio by end-2015), and it unmistakably fails the test if we take the pass standard to be the maximum requirements that could be in place under Basel III by the end of the stress period.

Put another way, even if we blindly accept all the major features of the Bank’s stress tests but the pass standard – if we accept the Bank’s chosen scenario, its use of the CET1 ratio as its capital-adequacy metric, the Bank’s own calculations etc. – and merely alter the pass standard to come into line with what the minimum capital requirement might plausibly be under Basel III by the end of the stress period, itself hardly a demanding standard – then we get a very different outcome to the one portrayed by the Bank: the UK banking system would then revealed to be massively capital-inadequate.

At the risk of belabouring the obvious, there are two further points about the Bank’s credibility that cry out from these results:

First, if the outcome of the stress test happens to depend critically on the choice of pass standard, then the outcome of the Bank’s stress test is not robust and therefore neither reliable nor credible – and this is especially so if the Bank’s preferred pass standard happens to coincide with its own self-interest which is to reassure us that the banking system is sound.

Second, the plausibility of the Bank’s view that the UK banking system is in good shape should not be contingent on such finer issues as whether the pass standard should be 4.5% (i.e., the pass standard implemented by the Bank) or higher (e.g., the pass standard promised by the Bank): if the UK banking system really were in good shape, this resilience should come through in all the tests, not just the least demanding test that happens to be the one that the Bank prefers. Moreover, for the test to be credible, the pass standard should be as high as is reasonably plausible. Conversely, for the Bank even to be suspected of applying the minimum pass standard they think they can get away with – when higher pass standards would give more negative outcomes – is to undermine the credibility of the whole exercise. The Bank’s stress tests need to be above suspicion if they are to be convincing.

If you don’t find this argument convincing, consider the medical analogy. A doctor is performing a medical check-up on a patient. He has a choice of tests to conduct: Test 1 has weak power to detect a particular problem, Test 2 has more power and Test 3 is more powerful still. By Test 1 there is no sign of any problem, by Test 2 there are hints that there could be a problem and hence a need to follow up, and by Test 3 the patient is clearly poorly. However, Test 1 is so weak that the doctor is not allowed to use it; instead, the weakest test he is allowed to use is Test 2, and the best practice advice among medical practitioners is to use Test 3 or something even stronger.

So what does the doctor do?

He tells the patient the results of test 1 and the patient thinks she is fine.

In the next blog, I will examine stress tests based on the more reliable leverage ratio as a capital adequacy metric.

Notes to Charts

Notes to Chart 1

(a) The pass standard is the bare minimum requirement (4.5%), expressed in terms of the CET1 ratio - the ratio of Common Equity Tier 1 capital to Risk-Weighted Assets.

(b) The outcome is expressed in terms of the CET1 ratio post the stress scenario and post any resulting management actions. The data are obtained from Annex 1 of the Bank's stress test report (Bank of England, December 2015).

Notes to Chart 2

(a) The pass standard is the sum of the bare minimum requirement (4.5%) and the Capital Conservation Buffer (2.5%), both expressed in terms of the CET1 ratio - the ratio of Common Equity Tier 1 capital to Risk-Weighted Assets.

(b) The outcome is expressed in terms of the CET1 ratio post the stress scenario and post any resulting management actions. The data are obtained from Annex 1 of the Bank's stress test report (Bank of England, December 2015).

Notes to Chart 3

(a) The pass standard is the sum of the bare minimum requirement (4.5%), the Capital Conservation Buffer (2.5%), the maximum Counter-Cyclical Capital Buffer (2.5%) and the Global Systemically Important Banks Buffer, which varies across the banks. These percentages are expressed in terms of the CET1 ratio - the ratio of Common Equity Tier 1 capital to Risk-Weighted Assets.

(b) The outcome is expressed in terms of the CET1 ratio post the stress scenario and post any resulting management actions. The data are obtained from Annex 1 of the Bank's stress test report (Bank of England, December 2015).

We find ourselves somewhat ticked off. Not because people are trying to persuade us of something, that's just normal. But that they're willing to, umm, brush over perhaps, the numbers in order to convince us of their desired course of action. And that's not the way it should be: numbers are important, the proper appreciation and quotation of them allows us to actuallly work out what is the truth of any matter. Yes that isn't how they are being used.
On the NHS and the exploding livers brought about by booze:

The recent report into life on the liver ward makes sobering reading. John has alcohol-induced dementia (Korsakoff’s syndrome) and doesn’t know where he is. Rita has cirrhosis of the liver and is homeless. Her life has spiralled downwards as a wine habit segued into damaging dependence. It’s easy to feel sorry for the Johns and Ritas, though most of us think it’ll never happen to us.

But will it? Are we becoming a nation of drinkers and drunks? The UK death rate from liver disease has increased fourfold in the past 30 years as cheap alcohol has flooded our shores and our gullets.

In the rest of the piece it actually says nothing at all about possible other causes of such cirrhosis or liver disease. Which is odd:

Common causes of cirrhosis are long-term alcohol abuse, hepatitis B and C infection, and fatty liver disease. Of those, hepatitis B and C together are said to be the leading cause of cirrhosis (WHO).

Agreed, that second number is not coming from the UK but there's obviously some amount of those other causes going on. That someone wants to persuade us to drink less, well, go ahead. But can't you do it using the actual and real numbers? And then of course there's Bill McKibben:

I’ve spent much of my life chronicling the ongoing tragedies stemming from global warming: the floods and droughts and storms, the failed harvests and forced migrations. But no single item on the list seems any more horrible than the emerging news from South America about the newly prominent Zika disease.

Or as implied, Zika is caused by climate change. Well, no. This is the spread of a virus into the extant mosquito populations of the areas affected.

And yes, we do think this is important. Because numbers are the secret to science and science is how we make sense of the world. Rather than rejecting the Demon Rum or worshipping Gaia. as the sign says, "Down With This Sort Of Thing". If we want to discuss what we should do about the world let us do it on the basis of facts: as represented by actual numbers, not incantations pulled out from who knows where.

My car insurance is due soon. I hadn't kept up with all the arcane ways that EU legislation affects UK business, but being curious about whether women still get cheaper car insurance than men on grounds of being statistically safer drivers who have fewer accidents, I looked online and found this:

The European Court of Justice (ECJ) has ruled that the long-established practice of setting insurance prices according to gender is illegal discrimination. The Court's decision forced members of the European Union to introduce a ban on gender-based pricing.

So, in basic terms, car insurers used to yield to market-based risk calculation (using a reliable tool called actuarial mathematics) and offer statistically safer drivers cheaper premiums (perfectly sensibly, in my view). Then the EU decided that it's much better to ignore all this data and assent to a spurious anti-unfair-discrimination policy, while failing to see the irony that in penalising statistically safer people for purposes of parity they are unfairly discriminating against safer drivers. This is beyond absurd. The primary measure of unfair discrimination in actuarial analyses is not treating different people differently, it is treating different people the same. Women are statistically safer drivers than men, which means they are cheaper customers, which means to increase their premium to the same as men is to unfairly discriminate against women.

The reasons why women are safer drivers are well known. Women are, on average, less likely to have fast cars, they drive fewer miles, they drive slower, they take fewer risks, and they are less aggressive than men. Giving women a lower premium based on those facts amounts to a simple and rational statistical evaluation of risk. The same is true of other considerations too - age, post code, miles per year, type of car, and so forth - each of these are important factors in risk evaluation, and the ECJ should leave well alone. The free market is the best tool for eradicating unfair discrimination in business, because pretty much any time a company decided to discriminate against women, black people, gay people, tall people, fat people, or whomever, they would pay for it with a reduction in profits*.

Of course, we know the probable motive in the ECJ's equalisation of gender - it is to guard against people with identical data having different premiums based solely on gender. But that misses the whole quintessence of how competition works in the free market. Suppose we have Jack and Jill, who are the same age, with the same car, same post code, and driving the same miles per year - the ECJ would have it that they should be given equal premiums because to do otherwise would be to discriminate on the only variable factor - gender.

But that is not what happens - while the data picks up facts like age, car type, post code, and miles per year, it doesn't account for those significant differences - speed of driving, risk-taking, aggression and other factors of mentality behind the wheel that make women more likely to be safer and have fewer accidents, and better candidates for cheaper premiums. The ECJ is guarding against the general being applied to the particular - but this is part of what makes competitive business healthy. In a free market we can work under an assumption of cheaper insurance premiums for a safer driving record at the individual level anyway - so it's a law that only actually compounds what already happens.

But we can extend far beyond that too - competing firms can solicit new custom by offering deals to acquire that custom. This proves very effective in the insurance market: some providers specialise in good deals for modified cars (like my modified Subaru), some specialise in good deals for women, some specialise in good deals for the elderly, some for first time drivers, and so on. Insurance companies have asymmetry of information when it comes to those vital premium-changers - they have transparency with data like age, post code, miles per year, type of car - but they don't have anything like the same transparency with things like speed of driving, risk-taking, aggression and other factors of mentality behind the wheel - which is where the actuary matters.

A company that's free to offer deals for women is acting on probability related to those invisible factors - but that also means women are free to look for insurers sensitive to such data, as are Subaru drivers, as are the elderly, and so forth. That's how beautifully the market for insurance rewards this innovation. If women are consistently safer, then they are consistently on average cheaper customers, which rewards those companies that are prepared in response to lower the premium for women. But if the data is spurious and women are less consistently as safe as the premium indicates then those same companies will incur a loss and adjust their women-favoured premiums to accord with that. It's a hugely efficient system that the ECJ hasn't properly factored into its considerations.

One of Gary Becker's great points was that irrational, or taste, discrimination is costly to the person doing that discriminating. That then leaves an opportunity to others, in that those being discriminated against are thus cheaper than an objective evaluation of their skills would indicate, meaning that those others can hire workers at less than their likely productivity. It's possible for us to take this idea further too, as we've mentioned before: if you think that taste discrimination is going on then you must also believe that those profit opportunities exist. At which point we've a useful metric to use to see whether we really do think such discrimination is going on.
Which brings us to this from John Timpson:

Most of the Timpson drama is provided by the colleagues who run our shops, many of whom have overcome considerable personal challenges to make a success of their lives (10pc of the people on our payroll have a prison record). We pick everyone for their personality, consequently they have some fascinating stories to tell.

We are entirely willing to believe that those with prison records are discriminated against, some fairly, some not. Indeed, one of us, decades ago, deliberately hired a book keeper straight out of his prison sentence for fiddling the books of his previous employer. We knew that his being jugged has scared the Bejayzus out of him and that it wasn't going to happen again. We know, from personal life, of other such cases as well. We would not be surprised at all to find that Timpson is able to profit by taking advantage of that taste discrimination. Or perhaps we might say that it's a matter of asymmetric information here: not everyone who has served time is a lemon in the Akerlof definition, but how do you tell? Get that right and there is an opportunity.

But our deeper point here is that this can be used as a measure of other discriminations. Who does believe that deliberately and specifically hiring women because they are currently underpaid (as Dame Stephanie Shirley famously did with female programmers at FI Group 50 odd years ago) will lead to greater profits? Or insisting upon job shares? Or hiring those of a rather greater melanin blessing than the average of the UK population? For to believe that there is such discrimination is to insist that there is such a profit opportunity. A non-belief in the opportunity is a non-belief in the original accusation of taste discrimination.

We do not, by the way, insist that no such discrimination occurs. We don't think it does, not to any great extent, but that's different. There are those who insist that it does: at which point our question is, well, why aren't you out there making your fortunes by exploiting it?

The BBC, Britain’s state-protected broadcaster, gets its funding from a tax of £145.50 on every household that possesses a TV capable of showing live broadcasts. That means live broadcasts from any broadcaster, so even if you never watch any BBC channels, you still have to pay. The exception is people over 75, who get their TV viewing for nothing because past governments ruled that television was an important source of companionship for the over-75s, many of whom live alone.
This week it has been suggested that since the BBC is short of money, the over-75s should be asked to pay the licence fee voluntarily, even though they do not have to.

What a hopelessly mixed up policy this is. Firstly, Britain should not even have a state-sponsored broadcaster. It might have made sense in the 1930s when broadcast technology was new, and required fabulously expensive national infrastructure, but no longer. Increasingly, the BBC looks like a dinosaur among a growing number of independent and international broadcasters. But it has a near-monopoly grip over Britain’s media sector, of the sort that Rupert Murdoch can only dream of. Plainly, it should lose that protection and operate as a commercial broadcaster, using whatever mix of subscription and advertising it deems fit.

Not only should we not have a state broadcaster, nor should it be financed by what is in fact a poll tax on households. Nearly everyone has a TV, so the licence fee is more of a universal tax to support a state service, rather than a subscription for a broadcast package of your choice. And the same tax is paid by all households, rich or poor (apart from those comprising 75-year-olds, of course). So that is hardly a fair system either.

But if we are determined to keep this unfair license system and we really think it essential that people over 75 should be able to watch television without having to worry about the cost, there are better ways of doing it. One would be simply to raise the state pension by the equivalent £145.50 a year. At least then, the money would go to poorer households, because richer ones pay tax on their pension income. Again, the sate pension is an unfair and poor-value system (and it is also a Ponzi scheme, relying on current contributors to pay current pensioners), but this uplift would be better than what we have now.

There was a time when pensioners were, almost by definition, poor. That was the thinking behind making it universal at age 65 (for men, and 60 for women) when it was introduced in 1911. At that time, most people were in some form of manual labour, and by age 65 there was a fair chance that you were so exhausted by a lifetime of it that you could no longer do much useful work, and therefore could not support yourself. Today, however, pensioners are on average richer than the working population.

So it is certainly unfair to make the younger population pay to subsidise the TV viewing of everyone over 75, many of whom will be far richer than they. The Queen, and Rupert Murdoch, are both over 75: but why should a single mother in depressed Middlesborough pay higher taxes, or a higher licence fee, so they can get free television?

This is the kind of absurdity you get when things like broadcasting and pensions are run politically. Now we are trying to make the over-75s feel guilty for the absurdities that the political process has created. They should not fall for it.

As our friends over at the IEA point out, close regulation and control might not in fact be the best way of managing matters:

Four in five sets of UK traffic lights should be torn down to reduce travel delays and boost the economy, a leading think-tank has claimed.
The proliferation of traffic lights, speed bumps and bus lanes seen in Britain in recent decades is “damaging to the economy”, the report from the Institute of Economic Affairs (IEA) finds.
It estimates that a two-minute delay to every car journey ends up costing the UK economy about £16 billion every year.
“Not only is a majority of traffic regulation damaging to the economy, it also has a detrimental effect on road safety and the environment,” the report claims.

There have been a number of empirical proofs of this contention. Traffic flowed better when a notorious set of lights in Beverly failed, a Dutch town has seen better traffic flow since mostly abandoning any detailed control. So, in the specific sense of traffic management, in certain conditions (we would not go so far as to say all) it is better to set general rules and then leave it to individuals to navigate their environment than it is to try and set detailed prescriptions for how each must act. Keep left, yield when necessary, be alert to what others are doing: rather than this file may move forward now, that in 30 seconds and so on.

What interests us is that this does, we are certain, apply in a more macro sense too. Yes, certainly, the economy as a whole needs certain basic rules. Don't cheat, play fair, do the best you can perhaps, but what it doesn't need is detailed rules. Bakers may only start to bake at 4 am, only shops at train stations may open on a Sunday, only those with a two year apprenticeship may drive a taxi in London, only a licenced electrician may change a kitchen plug.

The analogy is pretty direct really: leaving adults to navigate their local environment dependent upon the local conditions leads to smoother flow. Leaving most people, most of the time, to their own devices in navigating the economy leads to a better flow through said economy. And, of course, flow here is what we mean by economic growth: that's what it is to a great extent.

This is not to argue for no regulation: it's to argue for the necessary minimum to produce the flow. Traffic will not flow smoothly if people start to drive on the right in the UK (as the joke has it, odd plates the day before even). The economy will not flow, will not grow, if we do not have rules about what is whose and how exchange takes place and is acknowledged. But once the general rules are set then leave people to it. It is, perhaps, to argue for the common law approach to regulation: anything we've not said you may not do you can. Rather than the Roman Law approach, and yes we know this is over egging the difference a little, which is that only those things we've said you may do may be done.

An analogy rather than a hard and fast comparison, but the underlying point the analogy is noting is that local conditions are much too complex, to changeable, for any centre to be able to provide prescriptive rules for all circumstances for both traffic and the general economy. Thus we should concentrate on producing the decision making rules, simple ones, by which people can navigate those local conditions.

If you prefer, if it turns out that just us normal folk can guide a tonne or two of metal capable of 70 miles an hour and up through the complexities of life better than the bureaucrats can tell us how to do it then we're entirely capable of sorting out our desired toothpaste, sugar consumption, booze quantity, weight, exchange and style of living without their intervention.

Which leads us to something we say quite a lot around here. It's amazing how much better things can get if we just stop government doing some of the damn fool things it already does.

That's not exactly a terribly flattering picture up above there but it is a typical one of the process of state creation. Yes, this is how polities are born: men with guns enforcing it. as the newspaper says:

Somali pirates who raked in millions of dollars in ship hijackings have developed a lucrative new racket - acting as armed "escorts" to foreign trawlers that steal the country's fish.
In a striking case of poacher-turned-gamekeeper, the same armed gangs who once preyed on the trawlermen are now acting as their bodyguards, earning huge "protection fees" in return for letting them poach Somalia's rich fishing stocks.

this is not poacher turned gamekeeper so much as the transition from Mancur Olson's roving bandits to stationary bandits. Olson's point being that it always has been the men with the weapons who decide how things get done and who gets what. But for the general population it's rather better when those men with guns decide to farm the population or a resource on a continual basis, rather than simply steal whatever and everything. For, eventually, it will click that slicing a bit off the top while growing the pie increases the amount that can be stolen. Thus even though the ruling class might be robbers, even robber barons, it is still possible for things to advance.

The way to look at this particular story is that this process is just starting in that part of the world. The other way to look at it is of course that it wasn't all that long ago that it was happening in our part of it. 1066 was most certainly exactly the same and there's various incidents since that we could say very much resemble it. Government isn't therefore just the name for what we do together. It is, rather, what is imposed upon us and the best we can hope for is an enlightened stationary bandit. Or, as we might also put it, one with enough guns to stop others imposing upon us but with not enough other powers for that very government to impose upon us.